Profit-Maximizing Firms Will Choose a Level of Spending on Research

question 18

Multiple Choice

Profit-maximizing firms will choose a level of spending on research and development, in the short run, where the

• A) marginal revenue from R&D is maximized.
• B) total revenue from R&D is maximized.
• C) marginal revenue from R&D is greater than its marginal cost.
• D) marginal cost of R&D is minimized.
• E) marginal revenue from R&D is equal to its marginal cost.

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Definitions:

MIRR

Modified Internal Rate of Return, a financial metric that addresses some of the limitations of the traditional internal rate of return by taking into account different financing and reinvestment rates.

Mutually Exclusive

Conditions or options that cannot occur or be chosen at the same time, requiring a choice to be made between them.

Internal Rate

Often refers to the internal rate of return (IRR), a metric used in capital budgeting to estimate the profitability of investments.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.